Maintaining a strong accounting system is essential for sound decision making, effective cash management, securing financing, and supporting long-term growth. The Association of Senior Executives (ASE) recommends that clients prepare and review financial statements monthly, including at a minimum a Balance Sheet and an Income Statement.
There are several important general considerations to keep in mind. First, ensure there is a clear separation between company and personal finances, as this is fundamental to accurate reporting and compliance. Second, all key accounts—including bank accounts, receivables, payables, prepaid expenses, shareholder accounts, and credit cards—should be reconciled to the general ledger monthly.
Companies should routinely confirm compliance with any loan covenants, including requirements related to working capital and debt service ratios. Finally, organizations should periodically assess whether their financial statements remain relevant, ensuring they continue to provide meaningful insights to support informed decision making.
Best Practices Checklist
o Complete monthly financial statements-Work with your accountant to create a well-structured general ledger (GL) that is tailored to your business and makes financial reporting easy and effective for decision making.
o Cash and Term Deposits- Maintain sufficient cash to meet obligations and forecast at least three months ahead. Invest surplus funds in GICs or interest-bearing accounts where appropriate.
o Accounts Receivable- Review invoices for accuracy and match to customer purchase orders. Issue invoices immediately when goods ship or services are delivered.
o Inventory – Conduct regular physical counts, investigate discrepancies and record write downs for obsolete inventory where required. Best to be rigorous and realistic here.
o Prepaid Expenses – Amortize insurance, taxes, and other prepaid costs over the proper period.
· Shareholder Loans Receivable – Are you compliant with somewhat harsh CRA rules requiring shareholder loans to be repaid within one year after the corporation’s fiscal year-end to avoid personal tax consequences? Do loans bear a reasonable interest rate (at least the CRA prescribed rate)? Consult your accounting or tax advisor to ensure compliance.
o Fixed Assets – Establish capitalization thresholds and depreciate assets over their useful life. Avoid expensing long term assets in a single period.
o Bank Loans – Monitor compliance with covenants and lender reporting requirements.
o Accounts Payable – Maintain accurate and complete supplier records, including payroll deductions and HST and take advantage of early payment discounts where possible.
o Shareholder Loans Payable – Ensure you are charging a reasonable interest rate. In order to protect your investment, consider registering a PPSA (Personal Property Security Act) lien through your lawyer on the loan.
Final Thought
A disciplined monthly accounting review strengthens lender confidence, improves cash flow, and supports informed strategic decisions. Strong accounting is not just compliance—it is a competitive advantage.
Claude Bagley- ASE Advisor